Stocks Start September on a Negative Note as Fed Fears Persist

After two positive weeks, there was a clear shift to bearishness at the start of September. Stock indexes closed lower as fresh inflation jitters renewed concerns about extended periods of higher interest rates. The U.S. services activity unexpectedly increased in August, climbing to 54.5 from 52.7 (ISM Services PMI®). New orders strengthened and business input costs increased, possibly indicating that inflation pressures remain high. Besides, the price index, which measures inflation, shot up to 58.9 from 56.8.

The Dow Jones Industrial Average fell 0.75%, or 261 points. The Nasdaq Composite slumped 1.93%, and the S&P 500 fell 1.29%. Benchmark 10-year Treasury yields rose 8 basis points to 4.26%, returning to 2007 levels. Two-year yields closed at 4.98%, up 10 basis points. The greenback surged to six-month highs above 105, up 0.89% for the week.

European stock indexes were mixed with the DAX and CAC down 0.63% and 0.77% respectively, while the FTSE edged up 0.18%. Industrial production in Germany fell by 0.8% in July, exceeding the anticipated drop of 0.5%, according to data released on Thursday. This follows a revised 1.4% decline in the previous month. These figures contribute to a series of data releases indicating that the eurozone’s largest economy is on the verge of slipping back into recession.

In Asia, Japan’s Nikkei edged down 0.32% and the Shanghai Composite slid 0.53% amid weak Chinese trade data. China's exports and imports fell in August with exports dropping 8.8% year-on-year and imports contracting 7.3%.

Winning week for energy as oil prices rally   

Despite the release of weak Chinese trade data on Thursday, energy stocks rose 1.39% week-over-week as oil prices continued to be buoyed by recent supply cut extensions by Saudi Arabia and Russia. Moreover, another draw in U.S. inventories for a fourth straight week signaled tightening supply. The WTI crude prices gained 2.29% for the week at $87.51, hitting their highest weekly close since November 2022. 

Except for energy stocks, most S&P sectors ended the week in the red. Industrials and materials were the most impacted with declines of 2.92% and 2.45% respectively. The IT sector was not far behind (down 2.34%), weighed down by Apple stocks. The tech titan saw a 5.95% dip in its market cap following reports of a potential ban on iPhone usage by Chinese government workers and state-owned companies. 

Communication services were almost flat (-0.04%) as Meta and Alphabet managed to stay above the flatline, up 0.51% and 0.29% respectively.

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